How General Motors Is Stealing Profits From Tesla
GM (General Motors) revealed something really interesting yesterday at their investor day in New York City.
They revealed that since 2021 they’ve serviced over 11,000 Teslas!
I’ve learned that for a car dealership, their parts and services segment is by far the most valuable business. A dealership I once invested in called ABG has a parts and services segment that made up only 16% of total company revenue, yet it made up 75% of their gross profits! Dealerships only make a small markup on the cars they sell, but then collect recurring, highly profitable revenue on things like replacing parts, yearly servicing, and providing financing.
It turns out that there are GM dealerships within 10 miles of about 90% of all Americans. A network like that is both incredibly valuable and would be something very difficult to replicate for another business. Tesla, at this point at least, cannot even get close to servicing all the vehicles they're selling.
The big difference here though is that we’re talking about Teslas which are electric cars. Electric cars have many less parts than a car with an internal combustion engine and therefore need many less frequent part repairs and less frequent service. However, the parts involved in an electric car are much more expensive to service than those in a gas car, so it actually evens out in the end. According to some sources I've seen, it may even be that yearly service costs on a Tesla are more expensive than on a gas powered car.
According to Google, the average Tesla owner has to spend about $832 on yearly service. If GM dealerships have serviced 11,000 teslas since 2021 that is something like $9.1 billion dollars in highly profitable and recurring service revenue! I’m assuming that as Tesla continues to grow so will GM’s business of servicing Teslas. Tesla is projected to grow sales by about 40% in 2023 so it’s possible that in 1 or 2 years that $9 billion in revenue for servicing Teslas will be closer to $12.5 billion for GM.
GM doesn’t own its dealers. They are independent franchises. So I'm unsure what the margins for them on this service revenue will be and unfortunately they don’t disclose exactly what services they’ve been doing on the Tesla’s they serve.
If I can get more clarity on what exactly this new and growing business means for GM I will make sure to update everyone.
Have a great weekend!